Analysts Are More Bearish On Denali Therapeutics Inc. (NASDAQ:DNLI) Than They Used To Be

The analysts covering Denali Therapeutics Inc. (NASDAQ:DNLI) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. At US$27.81, shares are up 7.3% in the past 7 days. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the latest downgrade, the 13 analysts covering Denali Therapeutics provided consensus estimates of US$61m revenue in 2023, which would reflect a stressful 44% decline on its sales over the past 12 months. Losses are supposed to balloon 48% to US$3.54 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$93m and losses of US$2.91 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

View our latest analysis for Denali Therapeutics

The consensus price target fell 6.3% to US$59.75, implicitly signalling that lower earnings per share are a leading indicator for Denali Therapeutics' valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Denali Therapeutics analyst has a price target of US$105 per share, while the most pessimistic values it at US$32.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 44% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 27% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 14% annually for the foreseeable future. It's pretty clear that Denali Therapeutics' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Denali Therapeutics. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Denali Therapeutics.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Denali Therapeutics analysts - going out to 2025, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.